'Law 41', recently passed by Panama's National Assembly, created a stir throughout the region earlier this month as savvy investors recognized its potential to give a further boost to the already booming real estate market in the Republic of Panama...

The Law, designed to encourage the establishment of Multinational Companies in Panama, gives exemption to Multinationals from the payment of income tax in the Republic of Panama for all services provided to any entity domiciled outside Panama.

In addition, it allows licensed Corporations to hire trusted foreign employees to fill management positions in the company authorizing them to work and reside in Panama which could spell an influx of international professionals moving to Panama.

Favourable economic development

In recent years, Panama's significant real estate growth has been triggered by the country's favorable economic development, which in turn has been boosted by political stability, an increase in tourism and the recovery of activity in the Panama Canal. However, this latest development will give an unprecedented additional boost to Panama City's real estate market as multinational corporations relocate to Panama and the demand for residential and office space increases.

HP and Caterpillar are just two of the first to announce new offices in Panama City and with Proctor and Gamble also rumored to be relocating a significant part of its Latin American business to Panama, the trend looks set to continue.

While residential sales prices have been increasing, particularly in prime locations, another interesting trend has been those related to Class A office space.

Vacancy rates for Class A office space are already down from 30% last year to 3% meaning that today there is virtually no available Class A space in Panama City. In addition, with Class A office space in such demand, lease rates have increased by approximately 20% over the past year.

Time is right to invest

"Average lease rates for Class A are $16-$20 per m2 per month with total occupancy costs at $22.74 per m2 per month (below those in the region including Costa Rica, Dominican Republic, Bahamas, Uruguay, Caracas, Bogota, Mexico City, Buenos Aires, Sao Paulo, and Rio de Janeiro) giving ample space for growth and also allowing for multinationals moving to Panama" said Alan Morrison, Vice President of Knightsbridge Investment Group, Panama City

"In addition, current sales prices are favorable, with the average sale price at $2,200 per m2. With these prices and Law 41 providing the final impetus for Multinational Corporations to relocate to Panama, the time is right for those looking to make an investment in real estate in Panama."